The Fair Labor Standards Act (FLSA), which is enforced by the Wage and Hour Division (WHD) of the Department of Labor (DOL), establishes the federal minimum wage, overtime pay rules, and recordkeeping requirements, and provides guidelines for child labor. The FLSA applies to virtually every employee in the United States.
In terms of overtime rules, the FLSA requires that overtime must be paid to every employee in a job that does not qualify for an exemption under one of the permitted categories: Executive, Administrative, Professional, Computer Professional, Highly Compensated. In addition to the salary test (must be paid a minimum of $455 per week*(see below note)), each of these categories has a specific duties test that must be met in order for a job to be considered as exempt under the law. If the duties test is not met, under the FLSA, employees in the job must be paid overtime at one and one-half times their regular hourly rate for all hours worked in excess of 40 in a workweek. Failure to pay overtime as required by the FLSA can result in significant penalties for the company.
As of 01/23/2019, the U.S. Department of Labor (DOL) increased penalties for violating federal minimum wage, overtime, and posting and safety requirements. The increased monetary fines apply to penalties assessed under Fair Labor Standards Act (FLSA), Family and Medical Leave Act (FMLA), and Occupational Safety and Health Act (OSH Act).
According to the DOL, employers that repeatedly or willfully violate federal minimum wage or overtime requirements will receive a maximum monetary penalty of $2,014 per occurrence. That’s up from $1,964.
In addition to assessing penalties, the FLSA allows the DOL or an employee to recover back wages and an equal amount in liquidated damages where minimum wage and overtime violations exist. Generally, a 2-year statute of limitations applies to the recovery of back wages and liquidated damages. A 3-year statute of limitations applies in cases involving willful violations. Remedies may be recovered through administrative procedures, litigation, and/or criminal prosecution.
Based on this information, it is apparent that the cost for non-compliance can be extremely high. And the potential costs outlined above don’t take into consideration the time lost from the business to provide all the relevant information retroactive to 2 or 3 years, the time to participate in litigation activities, or the cost of the litigation itself. Taking the appropriate steps to ensure compliance would seem to be a prudent business decision.
*Note – the current salary test threshold is currently $455 per week. There is a proposed rule that this amount be increased to $679 per week and the DOL extended the commentary period to June. The DOL will be making its final ruling which is widely expected to become effective January 1, 2020. Many employers are already starting to review their current structure for compliance with the new salary level.
Ensuring compliance within your organization should be a high priority piece of your HR strategy this year. High-level steps to becoming compliant would include:
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- Data review
- Job description review, update, or creation
- FLSA analysis and determination of exempt/non-exempt status of each job role
- Discussion with senior management to gain consensus and agree on implementation date
- Prepare employee communications as needed
- Meet with affected employees
- Prepare notification of status and rate changes for payroll provider
- Answer employee questions during and after implementation
If you’re unsure about how to audit these aspects of your business, or want an expert to conduct the review process, we can help. Reach out today to learn more.